82 test bank for survey of accounting 7th edition

82 Test Bank for Survey of Accounting 7th Edition

True - False Questions
The stockholders’ equity of a company should equal the sum of its total
assets and total liabilities.
1.

True

2.

False

The balance sheet represents the accounting equation.
1.

True

2.

False

A partnership is owned by two or more individuals.
1.

True

2.

False

Manufacturing businesses change basic inputs into products that are sold to
individual customers.
1.

True

2.

False

The objective of most businesses is to maximize profits.
1.

True

2.

False


Merchandising businesses produce products rather than provide services to
customers.
1.

True

2.

False

The basic type of stock issued to owners is called common stock.
1.

True

2.

False

John Deere is a leading manufacturer of agricultural machinery in the world
producing products that serve unique market needs. Therefore, John Deere is
an example of a company that uses a premium-priceemphasis to attract
customers.
1.

True

2.

False

Creditors have preference to assets behind stockholders if a business fails.
1.

True

2.

False

Stockholders of a corporation are its internal stakeholders.
1.

True

2.

False


The ownership of a proprietorship is divided into shares of stock owned by its
stockholders.
1.

True

2.

False

Accounting is thought to be the "language of business" because business
information is communicated to stakeholders.
1.

True

2.

False

Assets are acquired through investing activities when resources are
purchased.
1.

True

2.

False

The branch of accounting related to the management’s financial decisions is
known as financial accounting.
1.

True

2.

False

A business stakeholder has an interest in the economic performance of a
business.
1.

True

2.

False

The popularity of the sole proprietorship is due to the ease and low cost of
organizing.
1.

True

2.

False

A primary disadvantage of corporations is that the financial resources
available to them are limited.
1.

True

2.

False

A corporation is a business that is legally separate and distinct from its
owners.
1.

True

2.

False

A liability is a legal obligation to repay the amount borrowed according to the
terms of the borrowing agreement.
1.

True

2.

False

Companies using a low-cost emphasis provide products and services that
compete on features other than price.
1.

True

2.

False


All merchandising businesses are organized as corporations.
1.

True

2.

False

A limited liability company combines attributes of a partnership and a
corporation.
1.

True

2.

False

Multiple Choice Questions - Page 1
Debts owed by a business are referred to as:
1.

a. accounts receivable.

2.

b. equities.

3.

c. stockholders’ equity.

4.

d. liabilities.

If there was no beginning retained earnings, net income of $30,300, and

ending retained earnings of $8,000, how much were dividends?
1.

a. $38,300

2.

b. $22,300

3.

c. $6,000

4.

d. $8,000


Univeo, Inc. had revenues of $245,000, expenses of $180,000, and dividends of
$45,000 during 2015. Which of the following statements is correct?
1.

a. Net income for 2015 totaled $65,000.

2.

b. Net income for 2015 totaled $20,000.

3.

c. Total retained earnings increased by $65,000 during 2015.

4.

d. Total retained earnings decreased by $20,000 during 2015.

From the following information for BlueInks Corporation, compute the rate on
return of assets.Net income after tax $30,548; Taxes $6,785; Interest expense
$3,545; Total assets at beginning of year $150,500; Total assets at end of year
$175,684
1.

a. 20.90%

2.

b. 25.06%

3.

c. 22.89%

4.

d. 18.73%

Tadeo, Inc. had the following account balances at September 30, 2015. What is
Tadeo’s net income for the month of September? Accounts Payable $ 5,800;
Capital Stock 12,000; Cash 15,500; Equipment 14,300; Fees Earned 53,000;
Miscellaneous Expense 16,800; Rent Expense 4,000; Retained Earnings 7,000;

Wages Expense 17,850;
1.

a. $10,800

2.

b. $14,350

3.

c. $14,450

4.

d. $27,500


Financing activities_____ .
1.

a. involve obtaining funds to operate a business

2.

b. involve obtaining assets such as buildings and equipment

3.

c. help to earn revenues and profits

4.

d. help to make wise investments in other companies

A summary of the cash receipts and cash payments for a specific period of
time is a(n):
1.

a.income statement.

2.

b. balance sheet.

3.

c. statement of cash flows.

4.

d. retained earnings statement.

Managers are evaluated primarily on the business's:
1.

a. tax collections.

2.

b. growth.

3.

c. economic performance.

4.

d. all of these.

A note payable requires payment of the amount borrowed plus:
1.

a. interest.

2.

b. tax.

3.

c. overhead.


4.

d. dividend.

A summary of changes in the earnings retained by the corporation for a
specific period of time is known as a (n):

1.

a. income statement.

2.

b. balance sheet.

3.

c. statement of cash flows.

4.

d. retained earnings statement.

Expressing financial data as if a business will continue operating for an
indefinite period time refers to which concept?
1.

a. Business entity concept

2.

b. Going concern concept

3.

c. Objectivity concept

4.

d. Adequate disclosure concept

Costs incurred in operating a business are also known as:
1.

a. revenues.

2.

b. expenses.

3.

c. liabilities.

4.

d. dividends.

A corporation is _____.
1.

a.an entity that is organized according to state or federal statutes and in which
ownership is divided into


2.

shares of stock

3.

b. an entity that is owned by an individual

4.

c. an entity which has unlimited liability to creditors for the debts of the company

5.

d. an entity which has limited access to capital

Capital market stakeholders have an interest in the company because:
1.

a. they provide incentives for the company to market their products.

2.

b.they are part of the Marketing Department that is responsible for promoting the
products or services to increase the business profits.

3.

c. they help market their products to customers or find vendors to supply needed
inputs.

4.

d. they provide major financing for the business.

Heedy Company had the following account balances in 2015 and 2016,
respectively. Assuming dividends of $20,000 were paid in 2016, how much
was net income? 2016 2015: Capital Stock $ 42,000 $ 40,000; Retained
Earnings x 210,000; Total Stockholders’ Equity $ 314,000 $ 250,000
1.

a. $62,000

2.

b. $82,000

3.

c. $272,000

4.

d. $252,000

Governments have an interest in the economic performance of business
because of:
1.

a. tax collections.

2.

b. community involvement from the business.

3.

c. business incentives.

4.

d. all of these.

Return on assets of 4.25% implies:
1.

a. $4.25 return on every $100 of total assets.

2.

b. $4.25 return on every $100 of debt.

3.

c. $4.25 return on every $100 of current assets.

4.

d. $4.25 return on every $100 invested to purchase new assets.

A list of assets, liabilities, and owners' equity as of a specific date is a(n):

1.

a. income statement.

2.

b. balance sheet.

3.

c. statement of cash flows.

4.

d. retained earnings statement.

Cash investments made by the stockholders of the business are reported on
the statement of cash flows in the:
1.

a. financing activities section.

2.

b. investing activities section.

3.

c. operating activities section.

4.

d. supplemental statement.


Including all relevant data a reader needs to understand the financial
condition and performance of a business refers to which concept?
1.

a. Adequate disclosure concept

2.

b. Going concern concept

3.

c. Objectivity concept

4.

d. Business entity concept

Rights to payments from customers are:
1.

a. liabilities.

2.

b. prepaid expenses.

3.

c. accounts receivable.

4.

d. accounts payable.

Profitability ratios such as _____ can be used to analyze and assess a
company’s financial performance.
1.

a. fixed assets turnover

2.

b. current ratios

3.

c. dividend pay out ratios

4.

d. return on assets

Motel 6, a company that helps customers find budget motels across the
nation, is an example of a business using which of the following?

1.

a. Low-cost emphasis

2.

b. Outreach emphasis


3.

c. Customer emphasis

4.

d. Premium-price emphasis

Due to various fraudulent business practices and accounting coverups in the
early 2000s, Congress enacted the Sarbanes-Oxley Act of 2002. The act was
responsible for establishing a new oversight board for public accountants
called the:
1.

a. Generally Accepted Accounting Practices for Public Accountants Board.

2.

b. Public Company Accounting Oversight Board.

3.

c. Congressional Accounting Oversight Board.

4.

d.Financial Accounting Standards Board.

_____ is the increase in assets from selling products and services.
1.

a. Revenue

2.

b. Liabilities

3.

c. Products

4.

d. Stockholders’ Equity

Given the following list of accounts, calculate Total Assets: Accounts
Receivable $ 10,000; Capital Stock 20,000 Cash 25,300; Equipment 16,800;
Fees Earned 44,400; Miscellaneous Expense 17,800; Rent Expense 3,250;
Retained Earnings 7,850; Salaries Expense 15,400; Wages Expense 15,000;
1.

a. $52,100

2.

b. $55,300

3.

c. $54,600


4.

d. $40,050

A low-cost emphasis strives to provide:
1.

a. no-frills, standardized products and services.

2.

b. products and services that provide unique market needs.

3.

c. products and services that provide prestige and image for customers.

4.

d. products and services that compete on features other than price.

A summary of the cash receipts and cash payments for a specific period of
time is a(n):
1.

a. income statement.

2.

b. balance sheet.

3.

c. statement of cash flows.

4.

d. retained earnings statement.

Cash collected from sales during the normal course of business would be an
example of which type of business activity?
1.

a. Operating

2.

b. Investing

3.

c. Financing

4.

d. None of these


During 2015, Trinder Corporation had an increase in total assets of $80,000
and an increase in total liabilities of $60,000. Assuming that capital stock
increased by $8,000 and no dividends were paid, calculate Trinder’s net
income or net loss for 2015.
1.

a. Net income of $12,000

2.

b. Net income of $72,000

3.

c. Net income of $28,000

4.

d. Net loss of $20,000

60 Free Test Bank for Survey of Accounting 7th Edition

by Warren Multiple Choice Questions - Page 2
The return on assets is calculated by _____.
1.

a. dividing interest expense by average total asset and verage current assets

2.

b. dividing net income before taxes and interest expense by average total asset

3.

c. dividing average total asset and interest expense by net income taxes

4.

d. dividing net income before taxes and interest expense by average current assets

Which of the following is the correct order for preparing financial statements?
1.

a. Income statement, Statement of cash flows, Retained earnings statement, Balance
sheet

2.

b. Retained earnings statement, Income statement, Statement of cash flows, Balance
sheet

3.

c. Statement of cash flows, Retained earnings statement, Balance sheet, Income
statement


4.

d. Income statement, Retained earnings statement, Balance sheet, Statement of cash
flows

The resources a business owns are called:
1.

a. assets.

2.

b. liabilities.

3.

c. earnings.

4.

d. stockholders' equity.

_____ is an example of internal stakeholders.
1.

a. Managers

2.

b. Creditors

3.

c. Stockholders

4.

d. Suppliers

When a business borrows money, it incurs a(n):
1.

a. tax.

2.

b. liability.

3.

c. receivable.

4.

d. additional equity.

Use the following information to determine Total Stockholders’ Equity: Total
Assets $ 45,000; Total Liabilities 18,000; Total Stockholders’ Equity x; Total
Retained Earnings 5,000
1.

a. $58,000


2.

b. $27,000

3.

c. $32,000

4.

d. $40,000

The role of accounting in business is best defined as:
1.

a.an information system that provides reports to stakeholders about the economic
activities and condition of a business.

2.

b. a method of forecasting the future profitability of a company.

3.

c. the policies, procedures, and strategies used in a business.

4.

d. transaction analysis.

Who has the first preference to assets in case a business fails?
1.

a.Stockholders

2.

b. Long-term creditors

3.

c. Customers

4.

d. Employees

The purchase of factory equipment would be an example of which type of
business activity?
1.

a. Financing

2.

b. Investing

3.

c. Operating

4.

d. All of these


Which of the items below is not a business organization form?
1.

a. Venture entrepreneurship

2.

b. Proprietorship

3.

c. Partnership

4.

d. Corporation

Which of the following businesses use a premium-price emphasis?
1.

a. Value City Furniture selling furniture at affordable prices

2.

b. Tommy Hilfiger selling products that have a unique image

3.

c. Wal-Mart reselling standardized products

4.

d. Southwest Airlines providing standardized services

Which of the following is true about the cost principle?
1.

a.It limits the economic data recorded in an accounting system to data related to the
activities of that company.

2.

b. It initially records assets in the accounting records at their purchase price.

3.

c. It assumes that a company will continue in business indefinitely.

4.

d.It reports the revenues earned by a company for a period with the expenses incurred
in generating the revenues.

The debt created by a business when it makes a purchase on account is
referred to as an:
1.

a. account payable.

2.

b. account receivable.


3.

c. asset.

4.

d. expense payable.

When a product is sold, the cost of the product sold is often called:
1.

a. cost of goods sold.

2.

b. selling cost.

3.

c. period cost.

4.

d. retained cost.

What is the primary objective of most businesses?
1.

a. To maximize profits

2.

b. To pay dividends to stockholders

3.

c. To provide a benefit to society

4.

d. To manufacture a quality product

The "rules" of accounting are called:
1.

a. income tax regulations.

2.

b. SEC regulations.

3.

c. Internet rules.

4.

d. Generally Accepted Accounting Principles.

Under a _____, a business designs products that possess unique attributes or
characteristics for which customers are willing to pay more.
1.

a. premium-price emphasis


2.

b. outreach emphasis

3.

c. low-cost emphasis

4.

d. customer emphasis

Which of the following types of business is popular for its ease and low cost
of organizing?
1.

a. Not-for-profit

2.

b. Corporation

3.

c. Partnership

4.

d. Proprietorship

The financial statement that presents a summary of the revenues and
expenses of a business for a specific period of time, such as a month or an
year, is called a(n):
1.

a. prior period statement.

2.

b. statement of retained earnings.

3.

c. income statement.

4.

d. balance sheet.

Which of the following is considered an asset until consumed?
1.

a. Accounts payable

2.

b. Prepaid expense

3.

c. Accounts receivable

4.

d. Stockholders' equity

Which of the following is not an example of a capital market stakeholder?
1.

a. Banks

2.

b. Owners

3.

c. Suppliers

4.

d. Stockholders

Which of the following is true about limited liability company?
1.

a. It is taxed as a separate legal entity.

2.

b. It combines attributes of a partnership and a corporation.

3.

c. Its financial resources are limited to the individual owner’s resources.

4.

d. Its formation process is complex.

Which of the following is true of rate of return on assets?
1.

a. It is a measure of a company’s profitability.

2.

b. It is used to evaluate a company’s ability to pay off its short-term debts.

3.

c. It is used to determine the financial leverage of a company.

4.

d. It is a measure of the optimum capital structure.

Which of the following are business stakeholders?
1.

a. Stockholders

2.

b. Suppliers

3.

c. Customers


4.

d. All of these

Which of the following is an appropriate representation of the accounting
equation?
1.

a. Assets + Liabilities = Stockholders’ equity

2.

b. Assets = Liabilities + Stockholders’ equity

3.

c. Assets = Liabilities

4.

d. Assets = Liabilities + Retained earnings

Which of the following is an intangible asset?

1.

a. Patent

2.

b. Cash

3.

c. Land

4.

d. Equipment

Which of the following would not be an example of a merchandising
business?
1.

a. The Walt Disney Company

2.

b. JCPenney

3.

c. Amazon.com

4.

d. Wal-Mart

The portion of a corporation's net income retained in the business is called:
1.

a. interest earnings.


2.

b. dividends.

3.

c. tax expense.

4.

d. retained earnings.

Shares of ownership are evidenced by issuing:
1.

a. shares payable.

2.

b. commercial paper.

3.

c. shares of stock.

4.

d. notes payable.

Which of the following is not a characteristic of a corporation?
1.

a. Corporations are organized as a separate legal taxable entity.

2.

b. Ownership is divided into shares of stock.

3.

c. Corporations experience an ease in obtaining large amounts of resources by issuing
stock.

4.

d. A corporation can elect to be taxed as a partnership.


Text Questions
Name and describe the three forms of businesses and their advantages and

disadvantages (if any).
Answer Given

(1) Proprietorship: owned by one individual. Advantages: ease and low cost of
organizing. Disadvantages: the financial resources available to this type of business
are limited to the owners' resources and to borrowing; (2) Corporation: organized
under state or federal statutes as a separate legal entity Ownership is divided into
shares of stock Advantages: ability to obtain large amounts of resources by issuing
stock, Disadvantages: dividend distributions from corporations are taxed twice. (3)
Partnership: owned by two or more individuals; Advantages: provides for pooling of
talent, Disadvantages: may outgrow its ability to finance operations

Define accounting and its role in business.
Answer Given

Accounting provides information for managers that can be used in operations of a
business. Accounting provides information to external stakeholders to use in
assessing the economic performance and condition of the business.

What is the basic accounting equation, and which financial statement is
prepared from this equation?
Answer Given

Assets = Liabilities + Stockholders' Equity; the balance sheet is prepared from this
equation.

How do businesses make money? What strategies can they use to gain a
competitive advantage?
Answer Given

Businesses have the objective of making money by generating more revenues than
costs. Businesses can seek competitive advantage by using a premium-price strategy
or by using a low-cost strategy. A premium-price strategy tries to meet a unique
market need based on quality, reliability, image, or design, allowing it to charge a
higher price. A low-cost strategy focuses on efficiency in product design and
production to offer a lower price due to lower costs.

Describe business stakeholders. State the classification of business
stakeholders.
Answer Given

Business stakeholders are persons or entities that have an interest in the economic
performance of a

Classify the following as an asset, liability, revenue, or expense: (1) Unearned
revenue; (2) Office equipment;(3) Wages payable; (4) Salary expense; (5)
Dividends payable; (6) Art fees earned; (7) Prepaid rent; (8) Accounts
receivable; (9) Income tax expense; (10) Office supplies.
Answer Given

(1) Liability; (2) Asset; (3) Liability; (4) Expense; (5) Liability;(6) Revenue; (7) Asset; (8)
Asset; (9) Expense; (10) Asset.